The SEC announced in a recent press release a whistleblower award of more than $300,000 to a company employee who performed audit and compliance functions and reported wrongdoing to the SEC after the company failed to take action when the employee reported it internally. The award is significant because it is the first award for a whistleblower with an audit or compliance function at a company.
“Individuals who perform internal audit, compliance, and legal functions for companies are on the front lines in the battle against fraud and corruption. They often are privy to the very kinds of specific, timely, and credible information that can prevent an imminent fraud or stop an ongoing one,” said Sean McKessy, Chief of the SEC’s Office of the Whistleblower. “These individuals may be eligible for an SEC whistleblower award if their companies fail to take appropriate, timely action on information they first reported internally.”
This particular whistleblower award recipient reported concerns of wrongdoing to appropriate personnel within the company, including a supervisor. But when the company took no action on the information within 120 days, the whistleblower reported the same information to the SEC. The information provided by the whistleblower led directly to an SEC enforcement action.
The SEC must protect the confidentiality of whistleblowers and cannot disclose any information that might directly or indirectly reveal a whistleblower’s identity. However, as reported by FCPA Blog, the SEC mistakenly released and later redacted a reference number Friday that indicated the case for which the whistleblower received an award. The number referred to a complaint filed by the SEC in federal court in New York on August 30, 2013 charging Phillip J. DeSwirek, former chairman and CEO of CECO Environmental Corp. and API Technologies Corp. with insider trading and with numerous other securities violations. The SEC announced a settlement on September 3, 2013, in which DeZwirek agreed to pay more than $1.5 million to settle the SEC enforcement action and imposed upon him a five-year officer-and-director bar.
The SEC’s whistleblower program was enacted as part of the Dodd-Frank Wall Street Reform Act. It rewards high-quality, original information that results in an SEC enforcement action with sanctions of more than $1 million. Whistleblower awards can range from 10 percent to 30 percent of the money collected in a case. In determining the amount of the bounty award to the whistleblower, the Dodd-Frank Act provides that the SEC must take into consideration the following criteria:
- The significance of the information provided by the whistleblower to the success of the action;
- The degree of assistance provided by the whistleblower and any legal representative of the whistleblower in an action;
- The programmatic interest of the SEC in deterring violations of the securities laws by making awards to whistleblowers who provide information that lead to the successful enforcement of such laws; and
- Such additional relevant factors as the SEC may establish by rule or regulation.
Prior to the payment of a bounty award, a whistleblower must disclose his identity to the SEC and provide such other information as the SEC may require, directly or through the whistleblower’s counsel. No contract with the SEC is necessary for any whistleblower to receive a bounty award, unless otherwise required by the SEC by rule or regulation.